Tuesday, April 23, 2024

Will the coronavirus outbreak sink the cruise industry? Los Angeles Times

cruise industry

Besides, says Andrew Coggins, a cruise expert and professor of management at the Lubin School of Business at Pace University. "Cruises are very difficult to sell if part of the country or the world is on lockdown," he says. "Plus, the public needs to be convinced that they are safe." He predicts many more months until the industry comes back.

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Some nasty seas ahead

By far the fastest growing segment of the cruise industry has been the advent of luxury expedition cruising, especially in Arctic and Antarctic waters. Additionally, cruise companies are adjusting to the changing demographics of cruise passengers by increasing single occupancy cabins and single oriented activities. There are now over a dozen cruise lines, led by Norwegian Cruise Lines, offering single traveler cabins. The global cruise industry is facing its biggest challenge yet, and it could be months before ships are sailing again. Carnival, the world’s largest cruise company, reported net income of $3 billion last year, compared with $3.2 billion in 2018.

cruise industry

Cruise passengers share what it’s like to be on a ship with COVID cases

First, there was the Diamond Princess, stranded off the coast of Japan as the coronavirus infected hundreds of passengers. Meanwhile, Norwegian Cruise Line told Skift it plans to resume sailing on May 15. It was asked twice by Skift to explain its own more than two month discrepancy with the CDC’s timeline, and declined to provide an answer both times.

Guests and crew members test positive for COVID-19 aboard Princess Cruise ship

Some lines are offering discounts — like a 125 percent credit if you rebook a canceled sail — to fuel demand for later this year and into 2021, says Judy Perl, president of New York-based Judy Perl Worldwide Travel, a Virtuoso agency. "The majority of our clients are very well-traveled so they're eager to resume cruising again," Perl says. "I suspect that after six, eight, or 10 weeks of lockdown, they'll be more eager than ever to resume cruising." Crystal Cruises last month announced a new 140-day world cruise from Miami to Barcelona, via the South Pacific and Australia, with stops in Asia and Africa, including such dreamy places as Tahiti, the Seychelles, and the Maldives. When they do return, cruise lines will likely test the waters with a small number of short, three- to five-day sailings to the Bahamas and Caribbean to start, predicts Coggins, the Pace University expert. Some frequent cruisers have said that new restrictions might put a damper on their plans, McDaniel adds.

And he added that cruise passengers are typically very loyal customers and are likely to return to cruising after the shock of the outbreak wears off. Hoping to tap into a surging middle class in China, several cruise companies began in 2016 to add lines to serve Asian markets. Royal Caribbean’s Quantum of the Seas swapped out a Johnny Rockets retro burger joint for a noodle restaurant and replaced the duty-free shop with a luxury leather boutique.

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Demand for cruises in the Caribbean, Alaska, and around the world was huge; fares were high. COVID-19 has, of course, changed all that, and cruise companies have been battered by an unprecedented drop in demand, sparked in part by CDC and U.S. Despite the cancellations, industry experts say that cruise prices have not dropped significantly. But Carnival Cruises recently offered up to $200 in “credits” that passengers can spend on ships if they keep their reservations through May 31. It's also difficult to know how long it will take to return to any sort of normal. Regular passengers may be willing to sail when the CDC finally OKs it, but new cruisers or less frequent customers may take longer to feel comfortable boarding a ship.

Impact of COVID-19

Ships could be docked for another 100 days -- but there is a silver lining (maybe) for Carnival, Royal Caribbean, and Norwegian. In an interview, Carnival’s chief executive, Arnold Donald, said the sale would generate enough cash for the company to survive without revenue into 2021. He added that Carnival hoped to take advantage of stimulus programs in other countries where it operates, like Germany, Britain and Australia.

After the capsizing of the Costa Concordia off Italy’s Tuscan coast and the fire on the Carnival Triumph, demand for cruise trips slowed to about 2% to 3% growth per year, down from the industry’s typical 7% annual increases. Travel agencies say most of their clients who had previously booked cruise trips — even river cruises in Europe — are now postponing those trips for several months instead of canceling them altogether. “If COVID-19 confirmed cases continue to rise in North America, no lodging or cruise company could be immune to financial consequences,” Moody’s said in a report Friday. This ruling removes any ambiguity or choice for Royal, Carnival, and Norwegian in terms of their U.S. cruise schedules. That sounds like cold comfort, but it means that when the industry returns, it will come back with the permission of the U.S. government.

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Despite its growth, however, the industry is still just a small segment of the travel industry. At an estimated 32 million passengers worldwide in 2020, it still has less than half of Orlando’s, the most visited city in America, 75 million visitors in 2018. Royal Caribbean told Skift, “we are aware of the CDC order and are studying how best to respond to its provisions. Our global sailings are currently suspended through May 11, 2020.” On Monday, its Twitter account reiterated the May 11 date to a passenger on Twitter.

Before they stopped sailing, Royal Caribbean, Celebrity Cruises, and Norwegian Cruise Line were among the brands saying they would institute a new rule barring any guests with chronic illness from their ships. Those lines would also require any passengers age 70 and up to have a physician's letter saying they're fit to cruise. Major cruise companies have announced plans to return by May, but industry analysts are predicting it will be June — or later — before any ships are back in service. The cruise industry has just ended an incredible decade of growth, and is well poised to extend its success into the next decade.

cruise industry

Among the dozens of issues are crew readiness, securing provisions, implementing passenger health screenings, and determining which ports will be open — and which might turn away a visiting ship. Then there's the challenge of simply getting potential passengers to the ship in the first place. "If any one of those 50 things don't happen, then cruise lines will have to extend the pause," Driscoll writes.

The most important key figures provide you with a compact summary of the topic of "Cruise industry worldwide" and take you straight to the corresponding statistics. Moreover, with Generation Z set to surpass millennials as the largest demographic group in 2020, the future of the industry appears bright. Generation Z and Millennials will comprise 32% and 31.5% respectively, of the U.S. population in 2020. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. From an investor's point of view, though, that may take a very long time, and there's a risk of bankruptcies wiping out shareholder equity.

Both generations share a common preference for “experiences” over material items and are committed travelers. Both have approximately 70% plus positive feelings about the cruise industry and have emerged as committed cruisers. The two groups represent a combined spending power of roughly three trillion dollars, and are poised to surpass baby boomers in the next several years as the largest spending demographic group. The growing interest of millennials and generation Z members in cruising is one of the factors that is driving the upgrade of internet connectivity on cruise ships. "The whole system is frozen, and there are probably 50 things that need to happen in order for cruise companies to operate normally," writes Mike Driscoll in the industry newsletter Cruise Week.

The industry provided 1.177 million jobs and an annual payroll of $50.24 billion, an average salary of around $45,000. Contrary to the widely held belief that cruise industry jobs are low paying, the industry has among the highest average salaries in the tourism and recreation sector. This has pushed the industry to the brink because the cruise lines are not included in any stimulus packages -- Royal Caribbean, Carnival, and Norwegian are not U.S. companies. They are also very vulnerable to public perception when an illness or other problem breaks out on board. The CDC taking charge may also help absolve the cruise lines from potential lawsuits that might have arisen had any of the three decided to head back to sea sooner than the others and experienced negative consequences.

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